Metropolitan sees lower earnings

3/10/2010 12:40:01 PM

Metropolitan Holdings Financial Services Group on Wednesday reported diluted core headline earnings per share for the year ended December 2009 of 141 cents per share, a decline of 7% over 2008's 151 cents.

Metropolitan declared a final dividend of 60 cents per share, 9% higher than the year-end declaration in 2008.

The group said the investment markets remained extremely turbulent throughout the year and long bond interest rates increased further. Increased inflation and extensive job losses put pressure on our clients' disposable income, as well as on the group's capital and operating profits during the year.

The general economic slow-down affected growth in operating profit across the group.

Despite severe pressure on cash flows from clients as a result of the recession, net inflows of R1.5 billion were recorded by the group and total new recurring premium business to the value of R1.159 billion was written in 2009, while single premium business amounted to R3.422 billion .

The value of the group's new insurance business for the year was R119 million.

"We are particularly pleased with our success in monitoring and managing our equity market exposure, given the roller-coaster ride that was 2009," said Wilhelm van Zyl, group chief executive.

"Dynamic asset allocation and capital protection strategies such as hedging, together with other de-risking activities, enabled us not only to maintain adequate levels of capital but also to strengthen our balance sheet in the face of unprecedented equity market volatility."

With its statutory capital adequacy requirement (CAR) covered 3.7 times (2008: 3.1 times) at group level and 2.8 times (2008: 2.0 times) at life company level, Metropolitan ended 2009 in an even healthier capital position than it began the year, a reassuring achievement in the light of the market turbulence experienced throughout the year.

A return of 12% on embedded value is further evidence of how well Metropolitan weathered the volatile economic environment, it said.

The group's embedded value grew to R12 billion or 1,811 cents per share from 2008's R11.3 billion or 1,709 cents per share, despite the fact that it paid out 95 cents per share in dividends during 2009.

Embedded value comprises a life assurer's net asset value plus the value of its in-force book of business and is widely regarded as an appropriate base for measuring the current value of such a business.

On the back of strong investment performance, the group's return on its net worth surged to R846 million a negative R281 million, while positive investment variances contributed R442 million compared with 2008's negative R982 million.

"Our prudent approach to capital management plus the fact that we are generating strong cash returns is continuing to pay dividends, literally and figuratively speaking," Van Zyl said.

The group's strategic empowerment partnership with Kagiso Trust Investments (KTI) was refinanced by a consortium of banks for another three years from October 2009, testimony to the success of the partnership.

At an estimated 20% after the refinancing, the group's direct black ownership percentage remains amongst the highest in the financial services sector and well above legislated requirements.

"A great deal of uncertainty remains as to the direction in which markets will move next, with many of the determining factors in the hands of foreign and local policymakers," said Van Zyl.

"Solvency II has been on international radar screens for quite some time and in South Africa the Financial Services Board is following the lead with its solvency assessment and management (SAM) project, in which we are actively involved.

"Consequently 2010 will be another year of focus on capital management, with the optimum allocation and utilisation of capital to add value for stakeholders remaining a top priority for us," he concluded.